For the Texas House, the special session concluded the day it began, with three bills passed by the House. The Senate adjourned Sie Die yesterday, June 27th, with five bills passed by the Senate. In the end, none of the bills made it to the Governor’s desk.
This report offers a recap of the House and Senate actions, as a starting point for the second called special session.
What was on the Governor’s Call?
Gov. Abbott included two items in the first special session proclamation:
“Legislation to cut property-tax rates solely by reducing the school district maximum compressed tax rate in order to provide lasting property-tax relief for Texas taxpayers.”
“Legislation solely for the purpose of increasing or enhancing the penalties for certain criminal conduct involving the smuggling of persons or the operation of a stash house.”
Property Tax Relief
House Action — HB 1 & HJR 1
The House’s property tax relief bill followed the Governor’s call exactly with a 16.2 cent reduction in school districts’ maximum compressed rate — no appraisal cap or homestead exemption in sight. The bill passed with 144 Yeas and 0 Nays.
A rate cut would likely benefit higher-income families and businesses the most. There are also concerns about the sustainability of cutting rates. If and when there is an economic downturn, the state may be unable to fill the school finance bucket, reducing funding for schools, or increase other taxes, such as sales tax, at the expense of low-income families.
Given the amount of surplus funds currently available, the compression bill poses no immediate threat, but hard times could pose a serious challenge. Additionally, our current compression system creates tax rate inequities among school districts since faster-growing, property-wealthy districts can get their full school-finance entitlement at a lower tax rate than slower-growing districts. Additional compression simply exacerbates this.
Senate Action — SB 26 & SJR 1
Keeping with the Senate’s preferred mechanisms of property tax relief, the chamber’s version of the bill included an increased homestead exemption and tax compression. However, Senate leadership added something new to this session’s debate — a franchise tax cut. Sometime after the Senate passed SB 1, which included compression and a homestead exemption, they pivoted to this new plan, SB 26. Although many argued the bill was outside of the Governor’s call, it passed the Senate with 30 Yeas and 0 Nays. SB 26 included:
- an increase in the homestead exemption from $40,000 to $100,000;
- a 10-cent reduction in school districts’ maximum compressed rate each successive school year;
- NEW: a reduction of the collection limit rate (CLR) used to calculate a district’s maximum compression rate from 2.5 percent to 1.75 percent. This means less property value growth is needed to trigger compression; and
- NEW: increasing the total revenue threshold below which a taxable business would owe no franchise tax from around $1 million to $2.47 million. Franchise taxes are levied by the state for doing business in Texas and vary per year. In 2022 and 2023, businesses earning less than $1.23 million do not have to pay a franchise tax. SB 26 would increase this so more businesses qualify.
It makes sense to increase the current homestead exemption, as flat dollar exemptions lose value over time. A flat dollar exemption distributes the tax burden relatively equally amongst households, with a greater share going toward the income groups more likely to be homeowners. Flat dollar exemptions give a bigger boost to middle and lower-class homeowners because the reduction in taxes is a greater percentage of their overall income relative to an upper-class homeowner. Traditionally, homestead exemptions have been primarily proposed by Democratic representatives but have now shifted to being a bipartisan method of reducing school property taxes.
Increasing the threshold to exempt franchise taxes will be a boon to small businesses. Although reducing franchise taxes will primarily benefit high-income households making more than $166.5 thousand per year, a targeted exemption is better than an across-the-board franchise tax cut.
The tax compression outlined in the bill presents the same issues as the House bill.
House Action — HB 2
HB 2 is nearly identical to the engrossed version of HB 800 from the 88th Regular Session. The bill establishes 10 and 15 year minimums and enhances penalties for human smuggling or related crimes, such as stash houses, except in cases where the defendant cooperates with state law enforcement. The offense of smuggling persons is extremely broad because of changes made by the legislature in 2021. For example, church vans with tinted windows could be deemed “concealing” a person with the driver subject to a mandatory minimum. HB 2 further penalizes these broad offenses.
Senate Action — SB 2 & SB 8
SB 2 by Birdwell creates the offense of Improper Entry from Foreign Nation. Additionally, it legitimizes Operation Lone Star (OLS) by requiring Department of Public Safety (DPS) law enforcement officers to detain people arrested for this offense in an OLS-established facility when possible. SB 2 will further erode the distinction between local law enforcement and immigration enforcement. SB 2 also interferes with federal authority to establish and enforce immigration laws. Additionally, it will lead to the arrest of migrants without preparation for safe, humane treatment and could lead to discriminatory practices of arresting individuals who appear to be undocumented. It is also predicted that the implementation of the bill’s provisions will cost $1.5 billion per year to the criminal justice system. The bill passed the Senate with Yeas 17 and Nays 12.
SB 8 by Birdwell establishes the Texas Border Force as a division of the Texas Rangers, with the chief of the Texas Rangers serving as its chief. Under SB 8, the Texas Border Force would be authorized different powers to conduct law enforcement operations, intelligence operations, and surveillance for criminal activity at the Texas-Mexico border. The Texas Border Force would also be permitted to enter into an agreement with the Texas Military Department (TMD) to assign military service members to the border force. Finally, SB 8 would authorize the governor to enter into agreements with the United Mexican States and its states regarding the authority of Texas to protect and defend its citizens.
SB 8 would increase the funding spent on border security leading to further detention and criminalization of asylum seekers and migrants. There is also concern that the increase of law enforcement in border communities will increase violence and costs for local residents and people passing through. Another concern is that SB 8 is another violation of federal authority. The bill passed the Senate with Yeas 17 and Nays 12.